PonziCoin Early Exit Suspected

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PonziCoin Website/Logo

PonziCoin encouraged users to send their bitcoin to BitcoinTalk user Vortuarackne, in exchange for the ability to receive more bitcoin back (or lose their funds if they were too late). In one of these sessions, Vortuarackne stopped paying out and panic ensued. Vortuarackne returned later to report that their server had been hacked and taken offline, refunded all affected users, and resumed the scheme for another week.

About PonziCoin

"Allow me to introduce PonziCoin. Having grown increasingly tired of waiting around for owners of other Ponzi games to manually process payments, or worse, run away with the coins, and being a bit of a "techie", I challenged myself to build a more sophisticated script, which not only automates every payment, but uses the entirety of the wallet balance in every payment round meaning at the end of the game, there will only be a few satoshi's left (at best) e.g. nothing I could run away with!"

"PonziCoin is a gambling game based on a Ponzi-type model. Before depositing, users should understand and accept the risks associated with this model. Payments will, and can only be made, once new deposits have been made. Should the system reach a confirmed deposit which is older than 12 hours, the game automatically resets." "PonziCoin charges a 5% fee. This helps cover the running costs of the site and provides the additional coins needed to repay the last deposit in every round. Due to this, the on-site balance will be slightly less than that shown on sites such as BlockChain.info."

Homepage:

The only Ponzi with an escrow reserve!

Deposit between 0.01 and 0.1 for your chance to receive a 120% return!

Rounds will automatically restart, with plenty of notice, when deposits begin to slow down.

The last deposit of each round is always guarenteed their 120% payout!

The Reality

As articulated, a ponzi scheme is a payment model where payments to existing investors are made using the funds of new investors. This model is never sustainable, and most individuals investing in a ponzi scheme will lose their funds.

However, when engaging in a ponzi scheme online, there is an additional risk in that the operator of the scheme may run off with additional funds of users. In this case, Vortuarackne agreed to take a 5% cut of all incoming payments, however there was no way to hold them to their agreement.

What Happened

After changing the original post to guarantee a higher payout of 200%, payments to subsequent investors stopped.

Key Event Timeline - PonziCoin Exits Early

Date	Event	Description
February 18th, 2014 8:16:48 AM MST	Vortuarackne Account Registered	The user Vortuarackne first registers on BitcoinTalk.
February 19th, 2014 5:57:17 AM MST	PonziCoin Announcement	The PonziCoin is first announced on BitcoinTalk. "Allow me to introduce PonziCoin. Having grown increasingly tired of waiting around for owners of other Ponzi games to manually process payments, or worse, run away with the coins, and being a bit of a "techie", I challenged myself to build a more sophisticated script, which not only automates every payment, but uses the entirety of the wallet balance in every payment round meaning at the end of the game, there will only be a few satoshi's left (at best) e.g. nothing I could run away with!"
March 9th, 2014 2:13:43 PM MDT	Edit on BitcoinTalk Post	The BitcoinTalk original post is edited to post an announcement that "As of round #7, the last deposit in every round is guaranteed to be paid out at 200%!!!!".
March 9th, 2014 4:05:28 PM MDT	No Payouts Happening	A BitcoinTalk user reports that "vortu is offline lolz and no payouts".
March 9th, 2014 4:39:36 PM MDT	Reddit Post About Event	A Reddit discussion happens about the event. The post on Reddit discusses the humorous situation where the operator of a Bitcoin ponzi website called Ponzicoin decides to run away without paying out the investors. The post includes a link to the Ponzicoin website and reactions from the Bitcoin community. The comments highlight the irony of people getting upset about losing money in a scheme with "ponzi" in its name and discuss the nature of ponzi schemes and gambling in the Bitcoin community. Some users find it amusing, while others express frustration at the lack of understanding among investors. Overall, the post captures the reactions and discussions within the Bitcoin community regarding this particular incident.
March 9th, 2014 4:45:29 PM MDT	Websites All Offline	BitcoinTalk users report that mini.ponzicoin doesn't work anymore. One user advises other users to "[r]ead the writing on the wall, folks. Sucks, but that's the ponzi game for you." while another states that "[c]oins are gone" and notes that they're "going to have zero recourse".
March 10th, 2014 3:03:05 AM MDT	Community Cynicism	The community discussion turns more critical of the participants in the scheme "What a bunch of derps. See what greed gets you?".
March 10th, 2014 10:01:33 AM MDT	Request To Turn Self In	williamj2543 points out that "large news sites like businessinsider and important journalists on twitter now know about this" and advises Vortuarackne to "send back the coins and say its a website failure and your internet cut out".
March 10th, 2014 10:28:17 AM MDT	User Payouts Resumed	BitcoinTalk user cyberadi reports that they "have cashback" and thanks Vortuarackne. Other users would also chime in shortly to report that they had also received back their funds. "OMG I GOT MY MONEY BACK GUYS CHECK THE WALLET OMG OMG OMG BLOCKCHAIN AWESOME THANKS VORT"
March 10th, 2014 10:29:18 AM MDT	Apology From Vortuarackne	Vortuarackne apologizes on the BitcoinTalk forum and states he had shut down the site after suffering an attack.
March 12th, 2014 5:32:43 PM MDT	Website Captured	The PonziCoin.co website is captured for the only time by Internet Archive.
March 16th, 2014 3:46:26 PM MDT	Vortuarackne Last Post	Vortuarackne makes their last BitcoinTalk post, ironically to complain about "[t]oo many alt accounts being created".
March 19th, 2014 5:12:42 AM MDT	Vortuarackne Last Active	The last time the user Vortuarackne ever logged into BitcoinTalk.

Technical Details

A ponzi scheme works by paying out early participants from the deposits of later participants. This original PonziCoin website was run by the BitcoinTalk user Vortuarackne, who had to be trusted to directly handle the pay-outs in order for investors to get their money back. In contrast with the later project also named PonziCoin in 2018, there was no smart contract to uphold the rules and stop Vortuarackne from taking more than his agreed 5% of deposits. Everything was based on trust in Vortuarackne, who was a relatively new user to BitcoinTalk.

Vortuarackne had a profitable game by taking 5% of fees. After changing the original post to guarantee a higher payout of 200%, payments stopped to subsequent investors. Many panicked and believed that Vortuarackne had walked away with the remaining funds.

Vulnerabilities In PonziCoin Website

Upon returning, Vortuarackne claimed that his site was compromised.

Guys, I'm terribly sorry I noticed the site was compromised last night with users being able to query the DB and what appears to be able to use my PHP RPC library to directly reach my local bitcoin instance. All deposits have been refunded.

e90145d00763825a395139c7b460365045aa579a90b918b1ae87d3069dfce21f

I am trying to nail down exactly what happened and I will post as much here later today. Initially it is looking like some of the code was available externally via HTTP requests. I'm tracking down which were successful and what the consequences of that are.

He reports that "the site was compromised last night with users being able to query the DB", which would likely refer to a database he was using to track deposits of users. He also reported that he suspected the attackers might "be able to use [his] PHP RPC library to directly reach [his] local bitcoin instance". PHP is a programming language commonly used for web-based requests, while the RPC is the remote procedure call, which is an interface that allows access to manage a bitcoin node. It suggests the possible risk that the attacker could have used the node to request withdrawals of funds from his wallets.

Total Amount Lost

The total amount lost has been estimated at $7,000 USD.

Immediate Reactions

Community discussions took place on Reddit and BitcoinTalk.

Explanations of Situation

There was significant confusion from non-participants who believed that all ponzi schemes must have a characteristic fraud component. As participants explained, all of them knew it was a ponzi scheme and the rules had been agreed upon ahead of time. Vortuarackne disappearing instead of making agreed payments was a clear violation of those rules.

"If they had sticked to their own rules and payed out the earliest n players winnings until the Jackpot is empty then it would have been perfectly ok, what has happened here is after a few successful rounds of the game they suddenly just took the jackpot and ran with it."

"We are chocked not bc the ponzi stopped from lack of investors, it is the 7th round... But bc the owner ran away with the money without paying anyone. From the outside we may look like freaks but please understand that he built trust very efficiently. I have still hope of getting back my money, i evaluate the probability at 7%"

Confusion Despite Clarification

Despite the clarification, many users continued to express confusion, and blame the victims for their participation in a ponzi scheme. Some observers made statements that were simply incorrect.

"It sucks to lose a bet, but I don't see how anyone here was "scammed." This was a well-advertised Ponzi scheme that paid out more than it took in, until it collapsed. Hopefully it was at least educational."

Reactions of Fear/Despair

"I feel so stu.Pid, i deposited 0.8 that was all i have. [I] lost 1btc to s.cams nd ponzis nd now probably 0..7 more, i am really done with it! i still have some hope that it is just a technical pb."

Threats To Report/Investigate

"I'm contacting privacyguardian.org (the registrar he used). They have a special form for reporting abuse. Will see how that goes."

"Who put this on reddit. Now all we have is ignorant people who don't even know what ponzi means making fun of us for using a GAMBLING website, and the owner running away. Btw Vort if you are still reading this some large news sites like businessinsider and important journalists on twitter now know about this, so I advise you send back the coins and say its a website failure and your internet cut out. PrivacyGuardian.org is going to send me your information like your IP address, and its only a matter of time before you get caught. Turn. Yourself. In"

Ultimate Outcome

The incident was shared in Reddit and ultimately spread to multiple media outlets. This resulted in further widespread criticism of everyone who participated.

Continued Criticism

Condemnation for participants continued.

"This is darwinism in its purest form. You are willingly participating in a ponzi scam, which make you a bunch of scammers as you want to profit from earlier investors money, and thus you deserve to be scammed and lose everything."

"At least Maddoff wasn't a random nick on the internet connecting through Tor and registering its website through a proxy. You really need to explore a new level of retardness to "invest" in this stuff."

Participants were blamed for giving an incentive to scammers.

"With their stupidity and greed ponzi participants are just giving an incentive to scammers to keep scamming, and thus I strongly believe that no pity and no mercy is deserved to those who lose money to these type of blatantly obvious scams."

One affected user took responsibility for their loss.

"In the interest of full disclosure, I lost .3btc to this guy, I made the decision to deposit based off having done it twice before without incident and because the developer wasn't hard to get a hold of and was in fact answering my PM's quite timely re-assuring me this is an isolated incident, referencing the times things went down without a skitch. I'm prepared to charge it to the crypto-game, because I know I always should be if I'm willing to partake in something I ultimately have no control over after those funds leave mine."

Ultimate Return Of Deposits

OMG I GOT MY MONEY BACK GUYS CHECK THE WALLET OMG OMG OMG BLOCKCHAIN AWESOME THANKS VORT

Total Amount Recovered

All invested funds in the round in question were ultimately returned to participants.

Ongoing Developments

The debate about whether there can be a legitimate form of gambling based around a ponzi scheme continues.

General Prevention Policies

PonziCoin was a literal and honest smart contract ponzi scheme. The rules were straightforward and users came in droves to play. As far as we can tell, no criminal action was taken and users generally appear to have accepted their losses.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.